WestRock Company WRK has agreed to take over the packaging business of Cenveo, Inc. CVO for $105 million. Given the attractive and complementary customers, markets and facilities, Cenveo Packaging will be a strategic fit to WestRock’s consumer packaging business. It is expected to generate significant synergies and be immediately accretive to earnings.
The sale involves six facilities located in the U.S., Canada and Dominican Republic along with strategic sourcing partnerships in Asia and the Caribbean that provide folded carton, shrink sleeve and lithographic laminated display packaging solutions. Cenveo Packaging focuses on markets that value high-color printing and packaging capabilities, including food, beverage, pharma/nutraceutical, specialty tobacco and other consumer markets. Over the past one year, Cenveo Packaging contributed more than $190 million to Cenveo’s revenues.
Post acquisition, WestRock will be able to better serve customers while generating significant synergies. Also, the company will be able to improve performance by combining its operating expertise in folding cartons and integrating paperboard with Cenveo Packaging's packaging and printing capabilities. The transaction, pursuant to regulatory approvals, is expected to close in early 2016.
WestRock stands to benefit from its investment in capacity, growth initiatives, spin off of the non-core Specialty business and shareholder friendly capital allocation strategy. Also, the recent SP Fiber Holdings buyout will enable the company to meet the increasing demand for lighter weight containerboard and kraft paper while broadening the product offering.
Further, WestRock is separating its specialty chemicals business, Ingevity, as it is not a strategic fit for its business the company’s business. The spin-off will better position both the businesses to pursue their respective operating priorities and strategies. The separation of the business is scheduled to be completed in Mar 2016.
However, unfavorable foreign currency translation and weak demand in Merchandising Display remain the concerns for the company.
WestRock currently carries a Zacks Rank #5 (Strong Sell). A couple of better-ranked stocks in the sector are Sappi Ltd. SPPJY and Stora Enso Oyj SEOAY. Both the stocks carry a Zacks Rank #2 (Buy).
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